December 06, 2004

Insurance rate suppression

Baylor professor and finance blogger Jim Garven (Dec. 1) posts on the politics of insurance rate regulation, with particular attention to the factors that can give rise to "rate suppression", which arises when regulators refuse to permit market-clearing rates. Of particular interest is his footnote 3, which reads in part: "The plaintiff’s bar likes rate suppression because this process renders the insurance ratemaking process into a very opaque and largely unintelligible process which makes it all the more difficult for consumers to discern the relative magnitude of the impact that the U.S. civil justice system has upon insurance rates. The reason why consumers’ groups prefer low rates should be apparent, but an often overlooked second order effect derives from that fact that many of these groups are funded primarily by plaintiff’s attorney associations (e.g., Ralph Nader’s Public Citizen group is known to receive as much as 3/4 of its funding from plaintiff’s attorneys)."